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F1 financial crisis long time coming

Last week’s build up to the United States Grand Prix was dominated by the devastating news within the space of a few days that the lowly Caterham and Marussia teams had both entered administration, and were going to miss at least the next two races if not more. The reaction amongst the F1 paddock is exactly why these two teams went into administration in the first place.

Whilst the top teams and personnel such as Bernie Ecclestone believed it was unfortunate that both went into administration, they also felt there was little they could do to change the spending culture of F1. On the other hand, midfield teams such as Sahara-Force India and Sauber have used both teams as an example of why the revenue streams within F1 need to be changed to make it more sustainable for the lower teams. The only exception at the top calling for change in F1 is FIA president Jean Todt, someone who made known his frequent frustration with failed attempts at a cost cap, something which he feels F1 needs to reduce it’s budgets by roughly 30-40% to make F1 sustainable.

After brief talk of a potential protest from some teams to further highlight the need for fairer revenue streams for the teams, Sahara-Force India deputy team principal Bob Fernley had strong words for the media in the run up to yesterday’s Grand Prix. He was quoted as saying by BBC Sport that ” F1 is at a crossroads. There is clearly an agenda, Two teams have been forced out. How many need to be forced out before they achieve the goal they are looking for? We have missed an opportunity in F1 to be able to get it sustainable, That is passed us and there is no point looking back.”

The strong words show the frustration of the midfield teams as they have been working tirelessly for a long time hoping to achieve some agreement from all the teams for a significant cost reduction in F1. In the last few days however some high ranking F1 personnel have slightly changed their tune and appear now willing to help ensure a cost reduction in F1. F1 supremo Bernie Ecclestone has recently favoured a move to third cars from the top team being loaned out to midfield teams for them to run, yet now appears to show some remorse for the way F1 has gone recently. He is quoted as saying “There is too much money being distributed badly – probably my fault. Like lots of agreements people make, they seemed a good idea at the time. I know what’s wrong, but don’t know how to fix it. ”

This statement from Ecclestone does seem a slight understatement, as it’s believe last year Ferrari earnt $200 million, $90 million of which was fully guaranteed before they even turned a wheel, yet Marussia received only $14 million for completing the whole season as Caterham earned nearly $28 million dollars. For there to remain a steady stream of teams in F1 this clearly needs to be rectified, especially as F1 keeps pushing this green initive starting with vastly more expensive engines for this year.

The uneven revenue structure for the teams currently in F1 only enhances the vicious circle of F1 whereby the best teams get the highest money from FOM, therefore they usually produce a faster car because of their larger budget, which then ensures they further enhance their prize money awarded by FOM. This is only making the performance gap from the top to the midfield teams even bigger, with the likes of Sahara-Force India and Sauber struggling to keep racing competitively this year.

This vicious circle goes back to the late 1990’s and early 2000’s, when manufacters such as Mercedes, Ferrari,BMW, Peugeot, Honda, Renault and Toyota all invested heavily in Formula One. This constant drive for success led to a spending war to which F1 is only just reeling from. Despite most of these manufacters leaving the sport by 2010 the biggest teams such as Ferrari, McLaren,Red Bull and AMG Mercedes have regularly spend over £185 million pounds a year to retain their competitive advantage. With teams like Sauber operating on a budget of £90 million, it’s easy to see why they struggle so much to match the top teams.

This financial model has been in place for several years now, however it’s only this year that it’s rearing it’s ugly head on a large scale. Whilst the demise of the Hispania team after the 2012 season was soon as no more than a backmarker team running out of money, the sudden demise of both Marussia and Caterham has finally showed F1 has a huge financial problem on it’s hands in the next few years. The introduction of highly expensive new turbo engines for this year has ramped out costs, which alongside a constant struggle to find sponsorship in F1 after the financial crisis in 2008, has led to the current situation where half the grid are struggling to pay the bills as the other half refuse to take any significant steps to stop this.

If F1 continues to use it’s current revenue model, we could very soon be seeing a grid of 14-18 cars of which Ferrari,AMG Mercedes, McLaren and Red Bull all supply the rest of the grid with third of even fourth cars. All the while the likes of Sauber, Sahara-Force India and Williams will be consigned to the history books as teams who simply ran out of money. As a passionate fan of F1 this would be a huge shame for the sport if we were simply to have three or four manufacters supplying the whole grid, which somehow doesn’t carry the same appeal of a grid containing 9-10 teams such as Sauber. Still, it would make a lot of money for the teams in extra sponsorship and give them a better portion of the teams prize money so their main priority would be boosted. That’s a crying shame for what is described as a sport, if it’s eventually money which strangles the sport, leaving hundreds of millions of fans and thousands of employees feeling lost.